In this three-volume book, the law of corporate finance is defined in a modern way and
studied from the perspective of a non-financial firm.
The law of corporate finance helps the firm to manage cash flow, risk,
principal-agency relationships, and information in the context of all decisions that
influence the firm’s finances.
The first volume introduces the fundamental concepts and explains the
relationship between corporate risk management, the management of agency relationships,
corporate governance, and the management of information.
The second volume discusses how risk, agency, and information can be managed in all
contracts. In addition , the second volume contains an introduction to the legal aspects
of payment obligations and the management of various forms of counterparty risk. The third
volume discusses a wide range of funding and exit transactions as well as the legal
aspects of takeovers.
Table of Contents
1 Introduction 1
1.1 What Does Corporate Finance Law Mean? 1
1.2 Why Was This Book Written? 2
1.3 What Are the Themes of This Book? 3
1.4 General Principles and the Firm 8
2 The Nature of Corporate Finance Law 11
2.1 Introduction 11
2.2 Key Objectives of Corporate Finance Law 11
2.3 Corporate Finance Law and Efficiency 17
2.4 Comparison with Other Fields of Law 18
2.5 Key Tools and Practices in Corporate Finance Law 21
3 Management of Cash Flow: General Remarks 23
3.1 The Scope of Legal Considerations 23
3.2 Generic Ways to Manage Cash Flow 24
4 Management of Risk: General Remarks 29
4.1 Introduction 29
4.2 Legal Risk 31
4.2.1 Introduction 31
4.2.2 Different Categories of Legal Risk 32
4.2.3 The Effect of the EU on Legal Risk 34
4.2.4 Excursion: Directly Applicable Community Law 41
4.3 Management of Legal Risk 46
4.3.1 Introduction 46
4.3.2 Strategic Level 48
4.3.3 Operational Level 49
4.3.4 Transactional Level 62
4.4 Management of Risk by Legal Means 67
4.4.1 Introduction 67
4.4.2 Living with Risk 68
4.4.3 Transfer of Risk Through Incorporation 71
4.4.4 Community Law, Incorporation, Governing Law 82
4.4.5 Transfer of Risk Through Contracts 92
4.4.6 Mitigation of Risk Through Diversification 94
5 Agency, Risk, Transparency, Governance 97
5.1 Corporate Risk Management v Corporate Governance 97
5.2 Partly the Same Legal Tools 97
6 Management of Agency in General 99
6.1 Introduction 99
6.2 Behaviour Modification 101
6.3 Choice of the Scope of Agency 105
6.4 Alignment of Interests 106
6.5 Monitoring (Transparency) 109
6.6 Choice of Agents 109
6.7 Rules and Standards 110
6.8 Initiation andRatification 111
6.9 Trusteeship and Reward 112
6.10 The Role of Legal Background Rules 113
7 Corporate Risk Management 115
7.1 Introduction 115
7.1.1 General Remarks 115
7.1.2 Financial Theory, Strategy, and the Firm 115
7.1.3 Corporate Risk Management as a Business Discipline 116
7.1.4 Costs, Risk Level, Compliance, Agency, Information 118
7.2 Strategic Risk Management 120
7.3 Operational Risk Management 123
7.4 Fundamental Organisational Measures 125
7.5 Excursion: Dealings with Third Parties 133
7.6 The Regulation of Corporate Risk Management 135
7.6.1 Introduction 135
7.6.2 Basel II and Ratings 136
7.6.3 Fair Value Accounting of Financial Assets 139
7.6.4 Basel II and the Governance of Banks 142
7.6.5 The MiFID and Risk Management 143
7.6.6 Disclosure of Risk 146
7.6.7 The Contents of Risk Management Policies 153
8 Agency and Corporate Governance 159
8.1 Introduction 159
8.2 Three-level Choices, Theory of Corporate Governance 165
8.2.1 General Remarks165
8.2.2 First Level, Artificial Person 166
8.2.3 First Level, Organisation 167
8.2.4 First Level, Legal Organisation v Real Organisation 168
8.2.5 Second Level, the Firm as the Principal 169
8.2.6 Third Level, the Interests of the Firm 172
8.3 The Function of the Board 174
8.4 Particular Remarks: Extreme Cases 179
8.5 The Function of Stakeholders 183
8.6 Allocation of Value and Risk 184
8.7 The Role of Shareholders 185
8.7.1 The Interests of Shareholders 185
8.7.2 The Function of Shareholders 188
8.7.3 The Relative Importance of Shareholders 193
8.7.4 Should the Share Price Be Maximised? 195
8.7.5 What Does Making a Profit for Shareholders Mean? 196
8.7.6 What Are Shareholders Paid For? 197
8.7.7 How Can the Board Increase the Value of Shares? 199
8.7.8 Why Should the Firm Use Takeover Defences? 201
8.7.9 Why Are Shareholders Protected by Laws? 202
8.7.10 Should Shareholders Have Formal Powers?204
9 Management of Agency in Corporate Governance 209
9.1 Introduction 209
9.2 Dealing with Different Agents: General Remarks 210
9.2.1 Agent Mix 210
9.2.2 Industries as Agents 211
9.2.3 The Firm as an Agent 212
9.2.4 Society at Large as an Agent 213
9.2.5 Shareholders as a Class as Agents 214
9.2.6 Individual Shareholders as Agents 217
9.2.7 Banks and Other Lenders as Agents 220
9.2.8 Customers and the Public as Agents 222
9.2.9 Managers as a Class as Agents 223
9.2.10 Individual Managers as Agents 234
9.2.11 The Board as an Agent 236
9.3 Community Law 241
9.3.1 Introduction 241
9.3.2 Separation of Decision Management and Control 244
9.3.3 Monitoring by the Board 249
9.3.4 Financial Reporting and Transparency 252
9.3.5 The Alignment of Interests, Financial Rewards 267
9.4 Controlling Shareholders' Corporate Governance Tools 272
9.4.1 Introduction 272
9.4.2 Block-holding as a Corporate Governance Tool 273
9.4.3 The Board as a Corporate Governance Tool 289
9.5 Minority Shareholders' Corporate Governance Tools 303
9.5.1 Introduction 303
9.5.2 Avoidance of Risk 305
9.5.3 Mitigation of Risk in Advance 305
9.5.4 Equivalent Treatment 308
9.5.5 Block-holding as a Corporate Governance Tool 309
9.5.6 Different Classes of Shares 317
9.5.7 Voting Caps 322
9.5.8 Exit Rights 322
9.6 "Good Corporate Governance" as a Tool 326
9.7 Outsourcing as a Corporate Governance Tool 329
10 Management of Information 335
10.1 Introduction1 335
10.1.1 General Remarks 335
10.1.2 Information and Information Economics 336
10.1.3 Dealing with Information Problems 339
10.1.4 The Role of Legal Rules on Information 344
10.1.5 Corporate Finance Law, Information, the Firm 346
10.2 Information Management in Corporate Finance Law 348
10.2.1 Introduction 348
10.2.2 Information Delivery Chain 348
10.2.3 Legal Tools and Practices: Genera! Remarks 352
10.3 Legal Tools and Practices: Investment in Information 352
10.3.1 General Remarks 352
10.3.2 Automation, Standardisation 353
10.3.3 Separate Decisions, Contracts 353
10.4 Legal Tools and Practices: Incoming Information 355
10.4.1 Introduction 355
10.4.2 Transfer of Risk 356
10.4.3 Intermediaries, Improving Information Quality 356
10.4.4 Creating Incentives 359
10.4.5 Screening of Potential Intermediaries 361
10.4.6 Identifying Good Intermediaries 363
10.4.7 Identifying Bad Incentives 366
10.4.8 Being Optimally Informed 368
10.4.9 Mitigating the Risk of Attribution of Information 370
10.5 Legal Tools and Practices: Outgoing Information 373
10.5.1 Introduction 373
10.5.2 Keeping Information Secret 374
10.5.3 Benefiting from Superior Information 391
10.5.4 Increasing the Perceived Usefulness of Information 395
10.5.5 Management of Reputation 401
10.5.6 Establishing or Restricting Communication 404
10.6 Analysis of Rights and Duties Relating to Disclosure 414
10.7 Community Law 415
10.7.1 Introduction 415
10.7.2 Main Policy Choices 416
10.7.3 Regulation of the Quality of Financial Information 425
10.7.4 Regulation of Intermediaries: General Remarks 438
10.7.5 Information Analysts Outside the Target 439
10.7.6 Information Analysts Inside the Target 454
10.7.7 Information Analysts Inside the Firm 465
10.7.8 Regulation of Outgoing Information Otherwise 466
References 471
494 pages, Harcover
